I am Forbes' Opinion Editor. I am a Senior Fellow at the Manhattan Institute for Policy Research, and the author of How Medicaid Fails the Poor (Encounter, 2013). In 2012, I served as a health care policy advisor to Mitt Romney. To contact me, click here. To receive a weekly e-mail digest of articles from The Apothecary, sign up here, or you can subscribe to The Apothecary’s RSS feed or my Twitter feed. In addition to my Forbes blog, I write on health care, fiscal matters, finance, and other policy issues for National Review. My work has also appeared in National Affairs, USA Today, The Atlantic, and other publications. I've appeared on television, including on MSNBC, CNBC, HBO, Fox News, and Fox Business. For an archive of my writing prior to February 2011, please visit avikroy.org. Professionally, I'm the founder of Roy Healthcare Research, an investment and policy research firm. In this role, I serve as a paid advisor to health care investors and industry stakeholders. Previously, I worked as an analyst and portfolio manager at J.P. Morgan, Bain Capital, and other firms.

In August, I wrote about how hospital monopolies are the biggest driver of health costs that nobody talks about. These powerful hospital chains know that insurers have no choice but to accept their jacked-up rates, and the cost of health insurance goes up whenever it suits their needs. Now, according to remarks by Federal Trade Commissioner J. Thomas Rosch, it turns out that accountable care organizations—one of Obamacare’s most touted policy gizmos—could make this problem far worse. “The net result” of ACOs, says Rosch, “may therefore be higher costs and lower quality health care—precisely the opposite of its goal.”

Rosch spoke last Thursday before the American Bar Association’s Antitrust Fall Forum, where he lambasted the “unintended consequences” of Obamacare’s headlong rush into the buzzword-filled land of accountable care organizations. ACOs, you will recall, are meant to improve the degree to which various physicians treating the same patient cooperate with one another. In theory, this would lead to better, more integrated care and reduced waste. In reality, ACOs will also stimulate mergers between hospitals and physician groups, worsening the problem of provider consolidation.

ACO’s purported savings shift costs to private insurers

The Congressional Budget Office, much to the dismay of Obamacare’s advocates, didn’t put much stock in ACOs, projecting that the law’s new Medicare ACO initiative would save $5.3 billion over ten years: eight-hundredths of one percent of Medicare’s projected spending over that period. “In other words,” Rosch points out, “the savings to Medicare from the ACO program are no more than a rounding error. Yet even the CBO’s modest cost savings projections are likely overstated.”

Rosch notes that the Centers for Medicare and Medicaid Services (CMS) have been running an ACO demonstration project, called the Physician Group Practice Demonstration, for several years now. “The results were nothing to crow about,” says Rosch. “Even after five years of the project, a majority of the participating practice groups did not achieve any cost savings.”

Not only that, but the modest cost savings that were achieved may have been gained on the backs of those with private insurance. “The commercial sector already effectively subsidizes providers accepting Medicare and Medicaid payments for certain services,” notes Rosch. “The ACO program may exacerbate this trend by causing providers to shift more of their costs to commercially insured patients in order to qualify for the Medicare cost-reduction bonuses.” Indeed, a 2010 study by the Center for Studying Health System Change found that this is what happened when California took up the cause of provider integration.

FTC’s ACO antitrust policies have giant loopholes

In theory, the Federal Trade Commission has the authority to challenge monopolistic hospital mergers. But in 1996, the FTC’s policies on health care mergers were amended to provide a safe harbor to competing hospitals that achieved sufficient clinical integration. “I thought then, as an antitrust practicioner who frequently represented health care providers, that the 1996 amendments…were the biggest loophole in the antitrust laws I had seen,” says Rosch. “Subsequent Advisory Opinions issued by Commission staff…were about as clear as mud.”

Earlier this fall, the FTC issued its final policy as to how it would enforce antitrust law with regards to ACOs. The final guidelines, says Rosch, are “extraordinarily generous to providers,” and will constrain the FTC’s ability to block exploitative provider mergers. “Against the very meager prospects for cost savings,” Rosch concludes, “there is a very real risk that some ACOs will be formed with an eye toward creating or exercising market power…Sociologist Robert K. Merton, who popularized the concept of the law of unintended consequences, would no doubt get a chuckle out of this state of affairs.”

Robert Merton might have gotten a chuckle out of it. But for middle-class Americans who are already struggling with the burdens of the rising cost of health insurance, and for taxpayers who will be saddled with Obamacare’s contribution to our federal debt, the potential ACO policy blunder is no laughing matter. Like many other aspects of our new health law, it may end up making health care even less affordable than it was before.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.

Comments

Tom Rosch is a smart guy but is out of touch with the reality of healthcare delivery and insurance. Insurers already dominate many markets to the point of take it or leave contracting with providers. United typically pays providers at about Medicaid levels. Providers are still a cottage industry and mergers will be required to get economies of scale. The future may find CMS entering a given market with X number of covered lives and asking the providers to bid for the business. That cannot happen with consolidation.